Writing in the New York Times recently, Louis Uchitelle calls for labor unions to be strengthened in order to prevent American firms from closing factories in the United States and shifting production abroad. Implicit in his argument is the notion that factories and the employment they provide are inherently desirable and the more the merrier.
Before addressing this point, however, let's first acknowledge that the decline in the number of factories and factory workers in the United States is overwhelmingly a story about automation and improved use of information technology rather than trade or outsourcing. A widely-cited study by researchers at Ball State University found that increases in productivity explain almost 88 percent of such job losses.
Uchitelle's contention, meanwhile, that greater unionization would stave off factory closures or even cause more to open in the United States is debatable. Sweden, the United Kingdom, and Japan, for example, all have significantly greater rates of unionization than the United States and yet have experienced higher percentage declines in manufacturing employment since 1990. And while he laments the "nearly neutered industrial unions" in the United States and their diminished proclivity to engage in strikes, a fondness for such worker protests hasn't prevented France from similarly experiencing a greater percentage decline in factory jobs.
But even if increased unionization held the promise of fewer factory closures, it's still not apparent why that outcome should be desirable. In fact, a blind obsession with the preservation of factory employment would almost assuredly make us worse off.Read the rest of this post »
Quite rightly, President Donald Trump and his Administration are targeting the transgressions of China against US intellectual property rights in their unfolding trade strategy. But why not use the WTO rules that offer a real remedy for the United States without resorting to illegal unilateral action outside the WTO?
Seventeen years after China joined the WTO, China still falls considerably short of fulfilling its WTO obligations to protect intellectual property. About 70 percent of the software in use in China, valued at nearly $8.7 billion, is pirated. The annual cost to the US economy worldwide from pirated software, counterfeit goods, and the theft of trade secrets could be as high as $600 billion, with China at the top of the IP infringement list. China is the source of 87 percent of the counterfeit goods seized upon entry into the United States.
One possible response by the United States is the one the Trump Administration seems to be taking: slapping billions of dollars of tariffs on imports of more than 100 Chinese products through unilateral trade action. Given its protectionist predilections, taking this approach is surely tempting to the Trump Administration. Doing so will, however, harm American workers, businesses, and consumers, and contribute to further turmoil in the global economy.
This afternoon, for the second time in the space of a month, President Trump is expected to invoke his authority under a rarely used statute to levy restrictions on a vast swath of imports and investment from China. The cause for today’s measures is behavior that the U.S. Trade Representative has characterized as rampant, sustained theft of U.S. intellectual property by Chinese entities and the Chinese government.
Although allegations—and the evidence supporting those allegations—that China routinely transgresses in the realm of intellectual property have been accumulating for many years, it does not follow that the appropriate response is to restrict trade and investment. In fact, the collateral damage inflicted by those restrictions will be widespread.
President Trump’s “remedies” are likely to raise production costs for U.S. businesses, diminish U.S. productivity, squeeze real household incomes, reduce the revenues of U.S. farmers and other export-dependent industries targeted by Chinese retaliation, exacerbate tensions with China and other countries adversely affected by the restrictions, and hasten the demise of the rules-based trading system.
Protecting citizens from threats domestic and foreign is the most important function of government. Among those very threats is a government willing to concoct and aggrandize dangers in order to rationalize abuses of power, which Americans have seen in spades since 9/11. Justifying garden variety protectionism as an imperative of national security is the latest manifestation of this kind of abuse, and it will lead inexorably to a weakening of U.S. security.
The tariffs on imported steel and aluminum that President Trump formalized this afternoon derive, technically, from an investigation conducted by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962. The statute authorizes the president to respond to perceived national security threats with trade restrictions. While the theoretical argument to equip government with tools to mitigate or eliminate national security threats by way of trade policy may be reasonable, this specific statute does little to ensure the president conducts a rigorous threat analysis or applies remedies that are proportionate to any identified threat. There are no benchmarks for what constitutes a national security threat and no limits to how the president can respond.
In delegating this authority to the president, Congress in 1962 (and subsequently) simply assumed the president would act apolitically and in the best interest of the United States. The consequences of this defiance of the wisdom of the Founders—this failure to imagine the likes of a President Trump—could be grave.
In response to threats of retaliation by the EU over his announcment of steel/aluminum tariffs, President Trump has been complaining about high EU trade barriers. Here’s a recent tweet of his:
If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!
And here’s something he said yesterday:
“The European Union has been particularly tough on the United States,” Mr Trump said at Tuesday’s joint press conference with the Swedish prime minister.
“They make it almost impossible for us to do business with them,” Mr Trump complained.
President Trump is right: EU trade barriers are too high. In addition, U.S. trade barriers are also too high. Here’s something I wrote a few years ago about tariffs:
In the context of the recently launced US-EU free trade talks (formally, the “Transatlantic Trade and Investment Partnership,” or TTIP), commentators have noted that tariffs between the US and EU are low, and thus the key part of the talks will deal with so‐called regulatory barriers to trade. An article in Inside U.S. Trade observes: “Overall, the U.S. average tariff rate is 3.5 percent, although the average tariff rate on goods that the EU actually shipped to the U.S. last year was even lower, at 1.2 percent, … .”
But these average figures mask some significant “tariff peaks.” There are lots of individual tariff rates, so if many are low or zero, that makes the average figure fairly low; nonetheless, there are plenty of high tariffs still out there. The same article points out some US and EU tariff rates that may come up during the negotiations. Here is the US:
— U.S. light trucks tariff of 25 percent; a tariff on wool sweaters of 16 percent; a tariff on sardines of 20 percent; a tariff on tuna of 35 percent; and a tariff on leather at 20 percent
Here is the EU:
— applied tariffs on honey of 17.3 percent; carrots at 13.6 percent; potatoes at 14.4 percent; strawberries at 20.8 percent; lemons at 12.8 percent, beef at 12 percent; and lamb at 12 percent
And all of those tariffs add up:
— the U.S. collected about $4.5 billion in tariffs from EU products in 2012. … [Of this amount,] $900 million comes from imported German cars; about $260 million comes from Italian clothes and shoes; and about $72 million comes from cheese imports.”
And regulatory trade barriers are even higher. So perhaps there’s a way out of the back and forth threats of tariff retaliation going on right now: The two sides could restart the TTIP talks, and bring down barriers on both sides.
Picking up on Simon Lester’s reaction on Friday to President Trump’s near 180-degree rhetorical pivot on the Trans-Pacific Partnership, I agree with the implication that one would be ill advised to set his watch to the man’s words. However, there are plenty of good reasons for Trump to change his mind and seek to rejoin the TPP, so maybe—just maybe—the president is beginning to see the bigger picture.
Before the 2016 election, I wrote a piece in Forbes explaining why any president would want the tools of the TPP at his or her disposal and predicted that the next president (despite both major party candidates disavowing it) would ultimately support it:
The TPP is a blueprint for securing U.S. geoeconomic and geopolitical interests now and into the future by updating the rules and institutions of international trade that facilitated 70 years of global economic expansion, poverty reduction, and relative peace. As an agreement that includes countries on four continents, the TPP is well-suited to fill the void created by the breakdown of the multilateral negotiating “round” approach to global trade liberalization. The TPP is open the new members and the fact that it has achieved critical mass (40% of global GDP represented) means that the cost of remaining outside the deal will rise with every new accession, so most eligible countries will choose to join.Read the rest of this post »
As investment has begun to shift from TPP outsiders to TPP members in anticipation of implementation, non-members have been implementing various domestic reforms to improve their prospects for eventually joining. And with China’s most important trade partners joining TPP, Beijing with have no better alternatives than to embrace the TPP, as well—and accept the new rules that will rein in some of the abusive trade practices of which China is so frequently accused.
In its final ruling issued just minutes ago, the U.S. International Trade Commission determined that the U.S. industry (Boeing) was NOT threatened with material injury by reason of dumped or subsidized imports of 100- to 150‐Seat Large Civil Aircraft from Canada (Bombardier). This is big news in the trade world for a variety of reasons.
Typically, domestic industries seeking relief under these statutes (the U.S. Antidumping and Countervailing Duty laws) are successful because the evidentiary thresholds are so low. The antidumping law was changed in 2015 to lower the thresholds even further, which helps explain the near record number of trade remedy case filings in 2017. Boeing seemed to be testing how low that threshold was. As I wrote a few months ago, “The language in the statute would seem to preclude an affirmative threat of material injury finding if there haven’t been any import sales.”
I’m glad the ITC seems to have agreed. It’s important that a case as meritless as Boeing’s, which was predicated on the notion that the domestic industry was “threatened” with material injury by reason of sales by Bombardier to Delta that haven’t even happened, of airplanes that haven’t even been built, which are of a class of aircraft that Boeing doesn’t even produce, was found wanting by the ITC. Seems like common sense, but the AD/CVD statutes accord very little room for common sense to prevail. It’s good to see some a crucial check on the system working.
But there’s still a lot of work to do to rein in the routine abuses and to make these laws more compatible with economic reality.